Hedonistic Adaptation

I came across a new term that got my interest today - hedonistic adaptation. Also known as the hedonistic treadmill. It is defined as the observed tendency in humans to return to a relatively stable level of happiness despite major positive or negative life changes.

This theory posits that we all have a "set point" of happiness that is internal. Good things in life: e.g. A promotion, getting more money, or buying something nice, will create a small spike in happiness that eventually fades back to normal. As a result we are not more happy than before the event. This applies the same way to negative events such as losing a job or getting injured, we are devastated at first, but eventually revert to a normal state of happiness.

When it comes to finance and living standards, this could lead to an eternal chase of having "enough" money. Each time earning power increases, and we increase our spending proportionally, it eventually feels like it is insufficient again and we need to hit the next level.

I have the fortune of not suffering any major negative event so far in my life. But, looking at my own life experience, I do think this theory holds true for positive events.

I think this theory provides good inspiration for this by helping me understand what gives me happiness.As I try and move towards financial freedom, I realise that my current expenditure is the biggest barrier. A lower expenditure creates more flexibility than a high income. I thus have been trying to cut my spending down. Knowing this theory reinforces that I do not need more money to be happy, and I should thus focus on reducing spending rather than focusing on increasing my income.

Before buying anything, I need to ask myself whether it will truly make me happier, or it is just a spike I can live without. While I think we could all do with small spikes of happiness over the day, e.g. My daily cup of coffee, knowing this theory, I should question whether a more expensive purchase will really make me happier. I need to look at the value the item can bring on a long term basis.

It also creates a motivation to spend less and indulge less, so that the times I do indulge would feel even greater by having more significant spikes in happiness.

This also informs my career and life goals, reminding me that increasing my income beyond a certain base level is unlikely to make me any happier. As such, once I have a comfortable level of reserves, enough income for a reasonable subsistence level (I assume theories like this do not apply below a certain standard of living), then I am unlikely to gain happiness by gaining more money and can calibrate my life accordingly.